Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 301

Caveat auditor and feeble SMSF investment strategies

As lawyers in the area of wealth, we always read cases for interesting legal issues that affect us and our clients. However, two recent cases resonate for the people who refer clients to us.

They show the risk to professionals who are not even giving the financial advice arising from investments which may go down as well as up. An Irish expression is, “It could have happened to a bishop” and, we can now add “It could have happened to an auditor.”

Case 1: Audits are not simply high level reviews

The first case is Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502 which arose from a divorcee, Ms Crittle, entrusting her $7 million property settlement with a Mr Moylan from Charlestown near Newcastle. She met Mr Moylan because her lawyer, Mr Turnbull of Turnbull Hill Lawyers, had offices on the same floor as him and he introduced her. You can see how this can happen, but it is rarely in the client’s best interests.

Audits are sometimes considered high level reviews of other people’s advice and decisions but when things go bad, lawyers will look to who to blame. The person who has to pay is not always the bad guy. In this case, the investments were worthless and most of the key companies were in liquidation, the advisers Mr Moylan and Mr Turnbull were bankrupts and their professional indemnity policies had lapsed. So they initiated proceedings against the auditor, Baumgartner Partners.

Baumgartner Partners undertook audits for the fund making the investments for the financial years ending 2007 to 2009. Their problem was that the investment strategy for those years was bland to the point of meaningless. It said the strategy for each investment class was “a normal investment range for each type of investment shall be: … 0% to 100%”.

We act for many excellent investment managers and they put a huge amount of effort and intellectual capital into the design of their asset allocation. It is considered the holy grail. So, when there is a bad strategy, it looks terrible.

The auditors claimed Ms Crittle was only entitled to an award of nominal damages of $300 in total for the admitted breach of the retainers. The Court found the client Ms Crittle 10% responsible and the auditors 90% responsible in this case, and 90% amounted to $2,034,126 plus costs. Of that, the Court found that Moylan Business Solutions Pty Limited should be responsible for 20%. It's a lot of money no matter who is counting it!

The lesson for professionals is to be careful who they introduce to clients.

Case 2: Auditor needs to look behind the accounts

In another recent case, the NSW Court of Appeal in the case of Cam & Bear Pty Ltd v McGoldrick [2018] NSWCA 110, was asked to consider whether the actions of an SMSF auditor, John McGoldrick, caused the losses suffered by an SMSF. The trustee of the SMSF, Cam & Bear, was established for Dr Lance Bear and his wife, Ms Jennifer Campbell. Dr Bear and Ms Campbell were directors of the trustee for the SMSF.

Some years after the SMSF was established, a close friend of Dr Bear, Mr Anthony Lewis, who conducted a finance business, offered to manage the fund’s investments. Sadly, this was not Dr Bear’s best decision and Mr Lewis’ advice resulted in heavy losses. The Court found: "The damage was, as made clear in the judgment on liability, caused by the conduct of LSL Holdings, Mr Tony Lewis and Databank (if they be different).”

We applaud funny names like 'Cam & Bear' mainly because we love cheese. However, no-one was laughing except perhaps the lawyers after the initial seven-day hearing and then the appeal.

The main issue was whether the auditor should have looked behind a description in the accounts of “Cash – LS Holdings P/L” to see whether it was cash or cash equivalents.  LS Holdings P/L was of course the vehicle for Mr Lewis. The poor Doctor had to give evidence as to his inferior understanding of investments and even cash. These were more correctly loans to that company but not necessarily recoverable.

Again, 10% of the loss was attributable to the trustee and 90% to the auditor but arguably Mr Lewis was more to blame.

We may complain that the bad guys got away again but these decisions are not surprising to those of us who read the cases and act in them. The practical solution is to have advisers that will be around to assist if things do not go to plan.

We know that most investment strategies for SMSFs are vague and not prepared by specialists in asset allocation. That is a form of madness and, in our experience, people who set up SMSFs sometimes suffer from taking their own advice or that of friends. We commend professional advisers and can give names if you contact us directly.

 

Donal Griffin is the Principal of Legacy Law, a Sydney-based legal firm specialising in protecting family assets. The firm is not licensed to give financial advice. This article does not consider any individual circumstances and Cuffelinks does not know the merits or otherwise of the case.

 

  •   10 April 2019
  • 2
  •      
  •   

RELATED ARTICLES

Clime time: Asset allocation decisions for SMSFs

Avoid complacency with your SMSF's investment strategy

Court holds SMSF trustees accountable

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Shares

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Investment strategies

Making a case for the 40 year mortgage

The housing debate tends to focus on prices, interest rates and deposits. Yet an overlooked feature of the mortgage itself could help buyers enter the market sooner without abandoning prudent lending standards.

SMSF strategies

Red flags to watch out for when considering an SMSF

Thinking about an SMSF? Before you sign anything, learn how to spot the difference between genuine advice and a sales pitch, understand the real costs, and avoid the compliance mistakes that attract ATO attention.

Investment strategies

Not all income is created equal

Market conditions are shifting as familiar yield sources quietly lose momentum. Australian public credit may be the most compelling source of income in today's market but many investors haven't noticed the shift. 

Investment strategies

The market paid for change, not comfort

Reporting season has delivered a clear message: the market is no longer paying simply for quality, resilience or an earnings beat. It is paying for change in earnings expectations and the outlook ahead. 

Investment strategies

Will AI destroy investor capital?

Some of history's most important innovations changed the world while leaving investors much poorer. As trillions pour into AI, a familiar pattern may be emerging, one that rewards society far more generously than capital.

ASX reporting season: Signals, surprises, stock stories

August reporting season delivered strong earnings and bigger-than-expected dividends, but beneath this, a more nuanced story emerged. First Sentier Investors’ David Wilson and Christian Guerra unpack the key trends.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.